Friday, February 6, 2015

Mark Weisbrot — Syriza’s win is the beginning of the end for the Eurozone’s long nightmare

Alexis Tsipras himself, the charismatic 40-year old leader of Syriza who has become the country’s youngest prime minister in 150 years, declared on Sunday that “Democracy will return to Greece.” This was mostly overlooked as mere political rhetoric, but it was actually a concise political statement that goes to the core of not only Greece’s but the eurozone’s main problem.…
The people have spoken, a government has been formed, and now the ball is in the court of the European authorities. They will have to decide whether they won enough, in terms of restructuring the eurozone economies to chip away at the welfare state, reduce labor’s bargaining power, cut health care spending (by 40 percent in Greece), and construct a more unequal society. It is a dilemma for them, because if they give in to Syriza, Spain could be next. The left Podemos party, which rose from its founding to lead the polls in just the past year with a program similar to Syriza’s, could benefit greatly from a successful Syriza administration. Spain’s economy is more than six times the size of Greece’s. 
On the other hand, if the European authorities refuse to bargain with Syriza, there is a risk that Greece ends up outside of the euro. Contrary to popular belief, the European authorities do not fear a Greek exit because it could cause a serious financial crisis of the euro. Like the Federal Reserve of the United States, the ECB can create money, and has all the firepower it needs in order to make sure that a Greek exit would not cause serious damage to the eurozone financial system. It demonstrated that in July 2012 when ECB President Mario Draghi put an end to two years of financial crisis, and doubts about the survival of the euro itself, by merely stating he would do “whatever it takes” to defend the euro. 
The real fear is Greece might leave and – after an initial crisis and capital fight – recover much more quickly than the rest of the eurozone, prompting other governments to also want to leave the euro. Bluff and bluster fill the financial press at the moment, but the smarter people in Brussels and Frankfurt understand this reality, and will want to make some concessions to the new government in Greece. Either way, this is the beginning of the end of the eurozone’s long nightmare.
Real-World Economics Review Blog
Syriza’s win is the beginning of the end for the Eurozone’s long nightmare
Mark Weisbrot

1 comment:

Kristjan said...

Rania Antonopoulos, Greece’s new deputy labour minister mentions modern money theory in this video
https://www.youtube.com/watch?feature=player_embedded&v=dKXwn3nOw3c